102.1/3–1145: Telegram

The Chargé in China (Atcheson) to the Secretary of State

401. To the Secretary of Treasury from Adler (for Treasury only). Present gold situation.

Government is now relying on sales of gold and 6-month gold deposits as main source of revenue. Receipts from such sales in January and February were CN 14 billion (plus 20% of that sum from compulsory purchases of 3-year Treasury certificates by gold purchasers), which is substantially in excess of receipts from taxation in same period. It will be noted that less than 25% of receipts from gold sales were from spot sales and that by far the larger part were from 6-month gold deposits. Central Bank’s short position on gold is now approximately one million ounces.
While Government is now selling gold it largely does not have on hand, at rate of 350,000 ounces per month or United States $105,000,000 per annum, receipts from gold sales, including compulsory purchases of treasury certificates, total barely 25% of current monthly deficit. And this deficit is not going to diminish during course of year. Therefore, if Government wishes to maintain in current ratio of receipts from gold sales to monthly deficit it will either have to increase price of gold or increase gold sales or both.
The reckless Government conduct of its gold sales policy can only be described as “frenzied finance”. [Page 1064]
It has been and is selling gold at an absurdly uneconomic price. The official pretext that price cannot be raised without an adequate supply on hand does not hold water. While official price of gold has been maintained, black market price has risen to CN dollars 39,500 per ounce; also witness the heavy purchase of 6-month gold deposits at end of February due to rumor that official price was to be raised at beginning of March. Official claim that raising price of gold would push up general prices still further cannot be taken seriously at a time when prices are skyrocketing in any case.
It is dissipating China’s foreign exchange assets, which she will badly need at war’s end, at current rate of United States $150,000,000 per annum without significantly affecting economic situation. In fact, since inflation has now entered snowball phase, future sales of gold at current rate will have even smaller effects as brake on inflation.
Part of the gold is finding its way into occupied China. [Adler.]